Land & Buildings Capital Management – Another Proxy Contest Ends

As several proxy contests end, so another raft begins. One of the interesting features of this year is that several activists who sat out 2016’s meeting season are back on the wagon. Sarissa Capital Management is one, as is the subject of this column, Land & Buildings Capital Management.

Land & Buildings Capital Management

Jonathan Litt’s Land & Buildings has been a revelation since deciding to become more consciously activist in 2014, targeting 14 companies. The following year, it initiated three proxy contests, one of which ended in a settlement, another in a sale and a third in defeat for the activist. In 2016, it settled with Felcor Lodging Trust, currently fighting a hostile bid from Ashford Hospitality Trust, in a mere three weeks. That meant this year’s major campaign could begin early, in October 2016.

The Taubman family, which includes CEO Bobby Taubman and Chief Operating Officer Billy Taubman, also owns 30% of the voting rights – which the activist claims were acquired at a discount through the issuance of Class B shares back in 1998. Land & Buildings reasons that this still leaves 70% of the shares, but the company’s staggered board plus last year’s recruitment of Cia Buckley Marakovits – a youngish private equity executive and former chief financial officer – as a director means it has chosen to run against both the CEO and lead independent director Myron Ullman. For only two seats, that is a lot of change to ask shareholders to back.

Still, the activist clearly thinks the endeavor is worthwhile. Shares currently trade at a little over $66, but Land & Buildings thinks $106 per share is achievable by exiting underperforming businesses, cutting overheads and seeking new revenue lines from kiosks, advertising and pop-up shops.

Moreover, the underlying question is whether $4 billion market cap Taubman might be swallowed up by a larger firm. In 2003, it rejected an offer from now $54 billion Simon Property Group. Even were Land & Buildings to remove Taubman from the board and persuade the other directors to replace him with someone more amenable to a sale, they would still have to secure near unanimous support among shareholders, given the required two-thirds supermajority and the Taubman family’s 30%. It wouldn’t be impossible to get the right deal done, but it will be the kind of challenge that only a 60% upside makes seem worthwhile.